The ups and downs of the rental property market

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The Rental Market:

The commercial landlord with investments on Britain’s high streets, retails shops and in some cases offices, have seen the threat of the relentless growth of internet shopping. But home delivery and urban living have at the same time created a boom and driven-up the demand for warehouses.

One company that’s benefited greatly from this seemingly on-going structural change is FTSE 100 quoted real estate investment trust, Segro (LSE: SGRO). Its share price has doubled over the last five years, quite a contrast when you look at the stock price performances recently of retail agents like Countrywide and Foxtons.

Segro says it has 891,000 square metres of property approved or under construction, and this year it has signed new rental contracts worth some £52 million. That’s a 48 per cent increase on its reported figure of £36.4 million for the same period in 2017.

Quite how long this boom in warehousing will last is hard to forecast, and there’s always Brexit entering into the equation. However, with land in short supply, and internet delivery forecast to continue its rapid growth, there’s no reason to suppose this story does not have longer to run.

Another property company that’s done well in the letting market is student housing specialist, Unite Group PLC (LSE:UTG). One of the biggest operators in this sector, the FTSE 250 Company has also seen its share price double over the last five years.

The latest report from the company claims that it has let out 98 per cent of its available accommodation to students in the current academic year, and it has managed to achieve a rental growth this year of around 3 to 3.5 per cent.

The group recently had a change of focus: selling off some of its units in the smaller university towns, to concentrate on what it calls the “high and mid-ranked universities�. Here it thinks demand should be the most stable for the future.

Continuing high student demand for university places obviously poses a risk for a company like Unite, as it does for ubiquitous small-scale student landlord. But Unite’s emphasis on the top level “Russell Group� schools, and that fact that something like 60 per cent of its 50,000 rooms are let on long-term agreements with the universities themselves, gives it long-term stability.

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